THE Bank of England says that £8 billion worth of cash has disappeared. You may think that’s small potatoes, since £284bn has been spent on dealing with Covid so far, and UK Treasury borrowing will be just shy of £400bn for this year, the highest peacetime total ever.

But £8bn is still quite a lot of money. It would make you the richest person in the UK. In public spending terms, it would buy you about a dozen small to mid-sized hospitals or eight Edinburgh tram networks. Or a thousand public inquiries into the cost overruns of the Edinburgh tram network.

In the way that money has of being confusing, a missing £8bn actually means an extra £8bn: what’s happened is that cash isn’t circulating. Between April and September, money taken out of ATMs in Glasgow, for example, fell by more than 70 per cent (in London it was 81 per cent) on last year. There are rules about how much physical money needs to be held, so more was printed.

No one knows where these notes and coins are. They could be in mattresses, or down the back of the sofa. The most plausible suggestions seem to be that businesses aren’t taking in enough cash to make it worth banking it regularly, or that people took out a lot of money at the beginning of the pandemic, but haven’t then used it.

Many outlets prefer, or even require, card payments; contactless is now 62 per cent of card transactions. Covid restrictions have probably accelerated an existing trend; now that I think about it, I can’t remember the last time I used cash.

Some people want actual money to go the way of the cheque (I definitely can’t remember when I last wrote one of them). The unlikely figurehead of this movement is Björn Ulvaeus, co-writer of Money, Money, Money, who, after being mugged, decided that cutting out cash would reduce crime and inefficiency and banned it from the Abba Museum. Sweden’s card issuers naturally encouraged this, and 10 years on, it’s becoming quite hard to spend physical money in the country.

You don’t have to be involved in the black economy to distrust the disappearance of cash: some people find it easier to budget, or don’t trust banks, or can’t remember their PIN, all perfectly respectable reasons. From cowrie shells to Bitcoin, money has taken all sorts of physical and now digital or virtual forms; at the individual level, the priority is usefulness and security.

When you and I deal with what little money we have, we’re interested in its agreed value, the ease with which it can be used and how much of it other people get to take off us. But then our ability to generate it out of thin air is limited by how much the credit card people will give us, and their annoying insistence on our paying it back.

Governments are in a different position. Despite the idiocies of the more extreme advocates of MMT, which means Modern Monetary Theory rather than Magic Money Tree, when you issue your own money, or set interest rates or taxes, you do gain some power over how it shapes and controls the economy.

Badly applied, that gives you Weimar-style hyperinflation. And it usually is badly applied, because it’s the solution favoured by the Left. But the MMT lot have a point that you can fight inflation with taxes as well as interest rates (in that sense they are just dressed-up Keynesians who view fiscal and monetary policy the opposite way round).

No government, however, gets to make that decision without either issuing its own currency or letting someone else do it. Until you settle that, it hardly matters whether the economic model of your Treasury is going to be the regulatory free-for-all but miserly public spending of Sir John Cowperthwaite, the man who made Hong Kong the most successful economy on the planet, or the command state ownership and welfare-spending splurge of John McDonnell, in whose proposals the UK electorate recently showed such confidence.

Fiat money, like the US dollar or sterling or the euro, is a vote of confidence in the country’s assets, prospects and stability. It’s not, in the absence of the gold standard, that’s it’s backed by nothing; it’s that it depends on the market’s appraisal of its worth.

If you don’t issue currency, it may be easier to secure that market confidence, but at the cost of control. Indeed, one fairly straightforward definition of sovereignty is that it inheres in the power to issue money. Being without that control is what destroyed, for example, Greece’s economy, and is now dividing the EU’s northern and southern nations.

If Scotland were independent, it would have several options. It could issue its own currency, and be entirely dependent on the market’s appraisal of how strong the country’s underlying economy was and how well it was being managed. It has the virtue and the hazards of being genuinely self-reliant. It would also require cuts in public spending much more aggressive than David Cameron’s “austerity”.

We could enter a currency union with sterling; something that rather undermines the point of independence. Or adopt sterling without a currency union, which would still leave all the control with the UK Treasury, and probably destroy pensions, too.

We could try a currency union with the euro by re-entering the EU, but while that might be politically fixable (Spain permitting), the rules don’t allow it. Under the Copenhagen criteria, aspirant member countries must demonstrate sustained compliance with EU standards for a functioning market economy – for which you need a track record. We only have the tram track.

It certainly wouldn’t happen immediately. Adopting the euro without membership has the same problems as sterling without a currency union, but with knobs on.

The point is not that any of these options is impossible, or even which you favour, but that you have to choose one before you can even start thinking about what kind of independence you would be aiming for. If, like the £8bn worth of missing banknotes, your money disappears, you need someone to lend you some, or a bank to print some.

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